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Attitudes Towards Large Income Risk in Welfare States: An International Comparison

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  • Fred Schroyen
  • Karl Ove Aarbu

Abstract

Using survey data and the instrument developed by Barsky et al. (), we estimate the distribution of attitudes towards income risk in a country where many employment and health‐related risks are generously covered by a tax‐financed social insurance system (Norway in 2006). Under a constant relative risk aversion assumption, the sample average for the coefficient of relative risk aversion is 3.8 with standard deviation 2.3. This number is then contrasted to that for five other OECD countries where risk attitudes have been measured using the same instrument and also prior to the financial crisis: Chile, France, Italy, the Netherlands and the USA. When we relate this distribution for stated relative risk aversion to that for generosity of social insurance and the risks related to employment and health expenditure, a picture emerges suggesting that more extensive welfare states induce higher risk tolerance for foreground risks—a relationship that is in line with the theory on risk vulnerability.

Suggested Citation

  • Fred Schroyen & Karl Ove Aarbu, 2018. "Attitudes Towards Large Income Risk in Welfare States: An International Comparison," Economica, London School of Economics and Political Science, vol. 85(340), pages 846-872, October.
    • Handle: RePEc:bla:econom:v:85:y:2018:i:340:p:846-872
    DOI: 10.1111/ecca.12267
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